The SEC investigation into collateralized debt obligations is in the lawyers' hands, as reported in JPMorgan's quarterly financial filing with the SEC.  JPMorgan’s securities unit has been cooperating with agency officials and “is currently in advanced discussions with the staff concerning a potential resolution of that investigation.”  The bank didn’t specify which CDOs were the subject of the SEC talks.

In one probe, the SEC reportedly is looking into whether JPMorgan misled investors about hedge-fund Magnetar Capital LLC’s possible role in selecting underlying assets in a $1.1bn 2007 “Squared” CDO deal.

Regulators have been investigating how banks packaged and sold mortgage-linked investments as the housing market unraveled in 2007.  The SEC has targeted firms "up and down the food chain" - from loan originators, like Countrywide Financial Corp., to underwriters, like Goldman Sachs Group which paid $550mn last year to resolve claims it misled investors in a subprime-linked CDO.

Back in January, former JPMorgan global head of structured product CDO's, Michael Llodra, received a Wells notice from the SEC saying investigators planned to pursue civil claims against him related to the sale of a 2007 product.  The SEC also gave a Wells notice on January 14 to Edward Steffelin, a former executive at a firm that helped manage JPMorgan’s “Squared” CDO.   [Bloomberg, 5/6/11]